BP's Q3 Results Reflect Doldrums in the Oil Patch

Public Domain via PA3 Robert M. Reed / Wikimedia Commons

BP PLC (NYSE: BP) reported third-quarter 2019 results before markets opened Tuesday. The oil and gas supermajor posted adjusted diluted earnings per American depositary share (ADS) of $0.66 on sales and operating revenues of $68.29 billion. In the same period a year ago, the company reported earnings per ADS of $0.85 on $75.44 billion in revenues. Analysts had estimated $0.59 in earnings per ADS and revenues of $64.16 billion. One ADS is equal to six ordinary shares.

Replacement cost (RC) loss (essentially net income) totaled $351 million, compared to an RC profit of $3.09 billion in the year-ago quarter. Underlying RC profit (adjusted net income) totaled $2.25 billion in the quarter, well short of last year’s gain of $3.84 billion in the quarter.

BP took an impairment charge totaling $3.32 billion in the quarter related to the divestment of legacy assets of its U.S. operating company BPX Energy and the sale of Alaskan assets to Hilcorp.

Excluding payments for the 2010 Gulf of Mexico spill, operating cash flow dropped from $6.62 billion in the third quarter of 2018 to $6.47 billion. The total includes $100 million released to working capital in the second quarter. BP paid an after-tax total of $409 million in the quarter in scheduled payments for the Gulf of Mexico spill.

CEO Bob Dudley said:

BP delivered strong operating cash flow and underlying earnings in a quarter that saw lower oil and gas prices and significant hurricane impacts. Our focus remains firmly on maintaining financial discipline and delivering safe and reliable operations throughout BP. We’re also continuing to advance our strategy, making strong progress with our divestment plans and building exciting new opportunities in fast-growing downstream markets in Asia.

The company’s upstream group posted a net loss of $1.05 billion, primarily due to the impairment charges for the sale of assets. Excluding those charges, underlying profit in the quarter totaled $2.14 billion, compared with a profit of $4.0 billion in the year-ago quarter. Daily production during the quarter totaled 2.57 million barrels of oil equivalent, up 4.4% year over year. BP’s realized price for liquids fell from $69.68 a barrel in the third quarter of 2018 to $55.68. The realized price fell by about $7 a barrel sequentially. The company expects fourth-quarter production to be higher.

Downstream (refining) pretax profits decreased by about 10% year over year to $2.02 billion. On an adjusted basis, refining profits decreased from $2.11 billion a year ago to $1.88 billion. BP’s refining marker margin was $14.70 a barrel, flat compared with the year-ago quarter and down from $15.20 in the second quarter of this year. The outlook for the current quarter calls for a similar level of turnaround activity and seasonally lower industry refining margins.

BP’s organic capital spending totaled $3.9 billion in the third quarter. For the year to date, capex totaled $11.3 billion, up from $3.7 billion and $10.7 billion in the comparable periods a year ago.

Analysts did not expect much from BP and the company delivered earnings and revenues that beat those low expectations. Investors, however, don’t appear to be mollified by BP’s rich 6.5% dividend yield. Earnings per ADS in the fourth quarter are tabbed at $0.75 on revenues of $66.89 billion. For the full fiscal year, earnings are forecast at $3.05 per ADS on revenues of $285.29 billion.

Other major integrated oil giants, including Shell, Exxon and Chevron, will report earnings later this week. Weak demand growth and low crude prices are expected to affect these companies just as they weighed on BP’s results.

BP’s ADSs closed down about 0.3% on Monday, at $39.24 in a 52-week range of $35.73 to $45.38. They traded down about 2.3% in Tuesday’s premarket session at $38.32. The 12-month consensus price target was $49.66 before Tuesday’s report.

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